Automakers fear domino effect from GM, Chrysler failure

Sorry, more doomsday BS.

Honda executives tell Trade Minister fallout from financial woes could hurt supply chain

Bruce Campion-Smith Ottawa bureau chief

OTTAWA–The collapse of North American auto giants General Motors and Chrysler could drag down other automakers, International Trade Minister Stockwell Day warns.

Day had met executives from Honda during a trade mission to Japan and reported yesterday they shared his concerns about the potential domino effect from the fallout of the sector's financial woes.

"The supply chain in North America really serves all of the automakers and if the main company goes down, it will pull supply chains down with it. That will affect other automakers whose position might not be so precarious," Day said yesterday in a conference call from Nagoya, Japan.

"If – again, underlining the `if' – if there started to be failure, that would affect all auto companies," Day said. "It's important that the industry survives, because what hurts one could hurt the other."

Ottawa and Queen's Park have said interim loans of $3 billion for GM of Canada Ltd. and $1 billion for Chrysler Canada will be advanced to assist the companies with their restructuring plans.

Honda has survived the recession better than most but even it has been facing "worldwide challenges," Day said. "This is one of the most difficult times Honda has faced.... They're doing their best to stay efficient," he said.

"Companies like Honda are ... relatively well capitalized and can ride out a storm for a while."
Earlier this week, federal Industry Minister Tony Clement prepared Canadians for the possible bankruptcy of GM or Chrysler.

"There used to be a phrase in the auto sector, `too big to fail,'" Clement said. "I don't think that phrase exists anymore."

Source;
http://www.thestar.com/Business/article/616625

What happens if an automaker goes bankrupt?

A: Under a Chapter 11 reorganization, a manufacturer's normal operations would probably continue. It would still be building cars and providing service, so car owners might not have problems getting warranty repairs, parts, and service.

In a Chapter 7 liquidation, the company would effectively cease to exist and car owners would largely be on their own. The company would still have to address safety recalls. It's possible that if another automaker buys a defunct brand, it would continue to support owners.

Perhaps more likely is an automaker's jettisoning a division, as GM did with Oldsmobile in 2004 and Chrysler did with Plymouth in 2001. Support for owners of those makes has continued through other GM and Chrysler dealerships. But the resale values of the vehicles plummeted, as would probably happen with a Chapter 11 bankruptcy.

If resale value is a concern, avoid buying a make that might be phased out. If you plan to keep the car for a long time, depreciation is less of a factor, and buying from a brand going out of business could make it easier to find a good deal. For more information on which automakers are best, see "Who makes the best cars?"

Source;
http://blogs.consumerreports.org/cars/2009/02/what-happens-if-an-automaker-goes-bankrupt-.html

GM loses $9.6 billion in last quarter bringing the total to $30.9 Billion for 2008

Embattled automaker reports larger than expected in fourth quarter loss and burns through more than $5 billion in cash; says it needs new loans this year.

By Chris Isidore, CNNMoney.com senior writer
Last Updated: February 26, 2009: 9:51 AM ET

NEW YORK (CNNMoney.com) -- General Motors posted a $9.6 billion net loss in the fourth quarter, a period in which its sales plunged and it needed a federal bailout to avoid filing for bankruptcy.

The company also disclosed that it burned through $6.2 billion in cash during the last three months of the year. The company ended the quarter with cash of $14 billion.

If not for the $4 billion federal loan it received in the quarter's closing days, GM's cash level would have fallen below the $11 billion to $14 billion in cash the company has said it needs to continue operations.

Since receiving the first installment of that loan, GM (GM, Fortune 500) has gotten another $9.4 billion in federal assistance. The company asked for an additional $16.6 billion in the turnaround plan it submitted to the Treasury Department last week. GM disclosed Thursday it will need this at least $9 billion of that money in 2009 to weather the current downturn.

The company is expecting to burn through another $14 billion in cash this year, with most of it taking place in the first quarter as the company struggles to deal with weak demand and significant overhead costs.

GM chief financial officer Ray Young said the company's request for more loans was made with that weak outlook in mind.

"We're not forecasting any heroic recovery for the industry in '09," he told investors.
The company also said it anticipates its outside auditors will issue a statement on whether the company is a "going concern." The statement could be important not only to investors but to federal officials who are determining whether the company is viable in the long-term.

If the government determines GM is not viable, it would demand immediate repayment of the company's loans.

The auditor's statement will be included in GM's year-end results filing with the Securities and Exchange Commission. GM disclosed Thursday it had filed for a two-week extension to submit that report.

The company also disclosed that its hourly and salaried pension plans are currently underfunded, on a combined basis, by about $12.4 billion. But GM said it does not anticipate needing to make a further contribution to those funds over the next three years.

GM facing challenges around the globe

As bad as GM's results were, it could have been worse. The company posted a $533 million gain because of the fact that GMAC, the finance unit in which it held a 49% stake during the quarter, got its bond holders to agree to swap debt for equity. GMAC become a bank holding company as a result of the debt swap, which significantly reduced GM's stake in the unit.

Excluding special items, GM lost $5.9 billion, or $9.65 a share, in the quarter. Analysts surveyed by Thomson Reuters had forecast a loss of $7.39 a share, compared to a profit of 8 cents a share on that basis a year ago.

The operating losses were particularly pronounced in GM's core North American market. It lost $3.5 billion before taxes in the quarter, up from a $1.3 billion loss in North America a year earlier.

Revenue in the North American unit plunged about 32% to $19.3 billion. GM's market share also slid 1.7 percentage points to 21%.

But GM, which now sells more than half its vehicles outside of North America, is facing challenges around the globe.

Losses more than quadrupled in Europe, and the company lost money in its Asia-Pacific and Latin America-Africa-Middle East units. GM posted profits in those two regions a year ago.
Overall revenue at GM plunged 34% to $30.8 billion, significantly worse than the Thomson-Reuters forecast of $35.1 billion.

For the full year, GM reported a net loss of $30.9 billion. The automaker has posted net losses of $82 billion over the past four years as its U.S. sales and market share plunged and it closed plants and slashed staff in an unsuccessful effort to stem losses.

Shares of GM fell about 8% in early morning trading Thursday.

Separately, GM rival Ford Motor (F, Fortune 500) filed its own year-end financial statement with the SEC Thursday. Its filing included an "unqualified" statement from the company's outside auditor that "there is no substantial doubt" about Ford's ability to continue as a going concern.

Because it arranged for billions of dollars of asset-backed loans and lines of bank credit years ago before the current credit crunch, Ford is in a much better cash position than GM and privately held Chrysler LLC.

Ford has yet to need federal loans but it has asked the government for a $9 billion line of credit in case the economy deteriorates further.

First Published: February 26, 2009: 7:19 AM ET

Source;
http://money.cnn.com/2009/02/26/news/companies/gm_results/?postversion=2009022607

'Detroit meltdown' worries Toyota, Honda

Nicolas Van Praet And Alia McMullen,
Financial Post Published: Thursday, November 13, 2008

Japanese automakers Toyota Motor Corp. and Honda MotorCo. say they are "very concerned" about the potential failure of Detroit's three car companies as analysts warn a bankruptcy would throw the entire auto supply base into chaos and rattle the operations of even the most profitable manufacturers.

The comments came as Canada's Finance Minister, Jim Flaherty, yesterday said some residents in his Ontario riding of Whitby-Oshawa, home to the Canadian headquarters and main assembly factories of General Motors Corp., don't want the government to hand GM and other Detroit automakers a bailout.

"We're very concerned" about a Detroit meltdown, said Mike Goss, spokesman for Toyota Motor Engineering &Manufacturing North America Inc. "In the past couple of days I've been asked 'Wouldn't it be great for Toyota if others fail?' We think the opposite is true."

The vehicles Toyota builds in North America contain an average of 75% domestically sourced parts and systems, and Toyota is reliant on many of the same suppliers used by GM, Ford Motor Co. or Chrysler LLC, Mr. Goss said.

The Japanese automakers are working to identify which suppliers have the biggest exposure to the Detroit firms.

They are also developing emergency plans in the event they need to replace a company providing them with parts. "Everything's on the table about what we might have to do," Mr. Goss said.

Should one or more of the Detroit three go bankrupt next year, all U. S. automotive operations, including those of the so-called new domestic manufacturers like Honda and Nissan MotorCo., will be paralyzed for at least one year because of the high likelihood many suppliers will run out of money, according to an analysis by the Center for Automotive Research, a think-tank based in Michigan.

"We expect a major wave in supplier bankruptcies or a 'supplier shock,' " the analysis said.

North America's roughly 6,000 auto suppliers are already under severe pressure from a collapse in U. S. sales of cars and trucks to 25-year lows, which has forced the Detroit automakers to cut output in the face of lower demand. Ford MotorCo. said yesterday it will temporarily shut down nine of its plants continent-wide this quarter as it builds 211,000 fewer vehicles than a year earlier, including Ontario assembly factories in Oakville and St. Thomas.

We're very concerned" about maintaining the stability of the supply base, said Edward Miller, spokesman for American Honda Motor Co. "Obviously this is very disruptive."

Mr. Flaherty said he expects U. S. lawmakers to craft a proposal for a rescue of the U. S. auto industry after GM warned last week it may not have enough cash to fund operations past this year amid a credit crisis. Discussions so far have centred around a bridge-loan package worth US$25-billion, in addition to US$25-billion worth of separate loans already approved to help the Big Three build more fuel-efficient vehicles.

"Economically, GM may prove too big to ignore simply because of the implications for not just employees, but also retirees and all the supplier companies if it was to collapse," said Nigel Gault, chief U. S. economist for IHS Global Insight Inc., an economic-analysis firm

Investors bet yesterday a bailout would go ahead, pushing up shares of GM by as much as 23% and Ford shares by as much as 11%.

Many Canadians say the federal government should do something to help the auto sector, Mr. Flaherty acknowledged at an economic conference in Toronto. "[But] there are lots of people that say, 'Don't do anything. Don't use my tax money to bail out an enterprise that may not survive.' " He added the views are not coming from rich constituents but "people on the street."

Mr. Flaherty said any aid Canada would offer would be for "transformational" support. "If we are going to do something, [we need] to find a way to ensure the sustain-ability, survivability, a product mix that is going to have profit here in Canada."

Henry Paulson, the U. S. Treasury Secretary, said yesterday automakers are a key part of the United States' manufacturing base but that any effort by government to rescue them "has got to be one that leads to viability."

Mr. Paulson is resisting pressure by Democratic lawmakers in the United States to use the US$700-billion Troubled Asset Relief Program, a bailout fund aimed at banks, to help Detroit.

Source;
http://www.financialpost.com/story.html?id=954380

GM, Ford May Face Bankruptcy on Slowdown, S&P Says

Well, these are some pretty intense times with how the stock market has taken a tumble, leading the way is GM and FORD. Times have not been good to either company and it is heavily reflected in how the economy has gone. A healthy domestic car sector is a healthy economy. Let's hope they can turn it around.
Oct. 10 (Bloomberg) -- General Motors Corp., Ford Motor Co. and Chrysler LLC may be forced into bankruptcy by slowing economies and dwindling U.S. auto sales, Standard & Poor's analyst Robert Schulz said.

"Macro factors could overwhelm them at some point'' even as the three biggest U.S. automakers vow to stick with their turnaround plans, Schulz, S&P's lead automotive credit analyst, said today in a Bloomberg Television interview in New York. The companies said they have no plans for a bankruptcy filing.

His assessment underscored the pressure on GM, Ford and Chrysler as the worsening global credit crisis makes it harder for buyers to get loans and dealers to finance their operations. S&P said yesterday it may further trim credit ratings for GM and Ford on forecasts for 2009 auto demand falling to the lowest level since 1992.

With all three companies working to boost cash, any bankruptcy filing would be a last resort, not a "strategic'' decision, Schulz said.

"We don't see that as something they would choose,'' he said. Schulz said the "trigger'' for a forced restructuring under bankruptcy protection would be based on the automakers' ability to preserve liquidity as sales decline. Industrywide U.S. sales slid 27 percent last month, the most in 17 years.

'Not an Option'

"Bankruptcy is not an option GM is considering,'' spokeswoman Renee Rashid-Merem said yesterday. "It would not be in the interests of our employees, stockholders, suppliers or customers.''

Ford and Chrysler also have said they're not considering bankruptcy.

GM rose 7 cents, or 1.5 percent, to $4.83 at 1:40 p.m. in New York Stock Exchange composite trading, while Ford dropped 8 cents to $2. GM slumped to a 58-year low yesterday and Ford closed at its lowest since 1982. Chrysler is closely held.

Operating-cash needs at GM, Ford and Chrysler are "substantial, so if it looked like they were going to be pushing toward that number because of these operating losses and cash usage, that's sort of the point where they'd have to consider'' bankruptcy, Schulz said.

S&P said yesterday that its debt ratings for GM and Ford, already at six steps below investment grade at B-, may be lowered again because the automakers face a "serious challenge'' in 2009.

Barclays Capital reduced its target stock price for GM to $4 today, with analyst Brian Johnson in Chicago citing dwindling global auto demand.

GM's Cash Needs

"With auto sales stalled in the U.S. and beginning to contract in the rest of the world, we believe GM's cash needs are increasing,'' Johnson wrote in a note. "Moreover, the downside risk of greater decline in worldwide auto sales driving greater cash needs is increasing."

GM and Dearborn, Michigan-based Ford lost a combined $24.1 billion last quarter. GM last posted an annual profit in 2004, while Ford hasn't had a full-year profit since 2005.

GM's Rashid-Merem said the automaker still expects to add $15 billion in liquidity by the end of next year, including speeding up plans to cut $10 billion in costs.

Ford has a cash cushion, spokesman Mark Truby said yesterday in response to S&P's report raising the prospect of another ratings cut.

Ford's Borrowing

"We were fortunate to go to the markets at the right time,'' Truby said, referring to $23.4 billion borrowed in late 2006 to help pay for shutting plants and cutting jobs while developing new models.

He said Ford is reviewing its liquidity and will give an update when third-quarter financial results are released. Ford hasn't given a date for the release, which the company typically issues later in October.

Chrysler has no plans to declare bankruptcy, spokeswoman Shawn Morgan said yesterday in an interview.

The automakers won Congress's approval last month for funding a $25 billion loan package to help develop more fuel- efficient vehicles. Those funds will be spread primarily among Ford, GM and Auburn Hills, Michigan-based Chrysler, though other automakers, such as Volkswagen AG, have said they will seek a portion.

Regulators are writing the rules for that borrowing even as auto-market conditions worsen. Industry researcher J.D. Power & Associates estimated yesterday that U.S. industrywide sales will fall to 13.6 million this year and 13.2 million in 2009. Last year's total was 16.1 million.

Industrywide Outlook

Industrywide sales of 13 million autos next year would mean shrinkage in the overall U.S. vehicle fleet, said Erich Merkle, an analyst for consulting firm Crowe Horwath LLP in Oak Brook, Illinois.

"We are going to find people where they may have had three cars and now have two, and two cars now have one, and a lot of that is just because of the economic environment,'' Merkle said. "They may not have the ability to buy a new car and even if they do, they may not be able to get financing for that car.''

Global demand in 2009 may be even worse, with "an outright collapse'' now possible, according to J.D. Power, which is based in Westlake Village, California.

GM may announce further production cuts or plant closures as early as next week, the Associated Press reported today. GM spokesman Tony Sapienza declined to comment on the report in an interview.

In July, GM said it was considering further cuts to its metal stamping and engine plants because of reduced U.S. sales.

GM's 8.375 percent note due July 2033 fell 5.5 cents to 19 cents on the dollar today, yielding 43.9 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Ford's 7.45 percent note due July 2031 declined 12 cents to 22 cents on the dollar, yielding 33.8 percent.

To contact the reporters on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net; Greg Bensinger in New York at gbensinger1@bloomberg.net


Below each logo is a link to the ticker for each company's stock quote in US funds.

Ford Motor Co. General Motors Corp.

Source;

http://www.bloomberg.com/apps/news?pid=20601082&sid=aFTJLqMhYLAs&refer=canada